Small Business Loans

 In Lifestyle

Small business loans can be great when you need to boost your brand, or cover those unexpected expenses. It’s useful to understand the difference between the available options before committing to one.

Some of the common business loan types

Overdraft (Line of Credit)

A line of credit involves overdrawing on your business’s bank account up to an amount approved by your bank or financial institution. This is often used for more short-term capital requirements, or as a source of cash flow (perhaps in a seasonal business).

Pros:
  • The application is more simple than some of the other loan types
  • An overdraft is flexible – using funds as needed
  • Provides an opportunity to establish a good credit history for future borrowing
Cons:
  • Fees are often incurred, even when the facility is not being used

Bank term loan (secured or unsecured)

A bank term loan is more of a medium-to-long-term loan option, which is usually used for purchasing equipment or perhaps helping with business start up costs.

Pros:
  • The interest rate is usually lower than the overdraft facility
  • The type of loan is usually flexible, offering variable or fixed rates
  • A bank term loan allows you to borrow a larger sum over a longer term, with lower interest rates
Cons:
  • There are usually restrictions around the minimum amount
  • They usually attract set up and sometimes service fees

Mortgage loan

If you are purchasing a property for your business, you can use a mortgage loan, where the lender will use the property as security until you have paid off the loan and any interest incurred.

Pros:
  • This could be easier to obtain that a bank loan
  • May offer features such as loan flexibility, redraw facilities and no-penalty early repayments
Cons:
  • There are usually restrictions around the minimum amount
  • They usually attract set up and sometimes service fees

Lease financing

Lease financing means the lender owns the asset and charges the business a hire fee. At the end of the lease agreement, the business may be able to refinance or purchase the asset. usually this type of loan is used for equipment and vehicle purchases.

Pros:
  • Allows your working capital to be used for other purposes
  • Often entitles your business to certain tax deductions (Please seek advice from an accountant)
Cons:
  • Sometimes these come with early termination fees and can be more expensive that other types of financing long term.

 

Are you looking for the right business loan?

Understanding how the different commercial loans vary can help you choose one that best suits your business needs.
Give us a call today for more information

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